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Is Blackstone Group About to Make a $1.5 Billion Deal?

The big private-equity firm is reportedly gearing up to unload security company AlliedBarton.

Private-equity giant The Blackstone Group(NYSE:BX) is one of Wall Street's busiest deal-makers. It's constantly buying, selling, and managing an ever-growing portfolio of assets.

According to whispers on the market, one of those holdings is being primed for a sale. And, as per habit, the company almost certainly won't be letting it go cheaply.

Secure investmentAccording to a report from Reuters, citing people familiar with the matter, Blackstone "is exploring a sale" of AlliedBarton Security Services and has retained Credit Suisse(NYSE:CS) to run an auction to effect the sale.

AlliedBarton claims to be the largest U.S.-owned security officer services provider, with over 120 offices and more than 60,000 employees. Heck, at that size it's practically an army.

An asset that large commands a high price; according to the Reuters article, a deal for the firm could value it at around $1.5 billion (including debt). If that amount is realized, it would represent at least a doubling of the total Blackstone paid to acquire it (up to $750 million) in 2008.

What makes the private-equity giant so successful (outside of a good nose for a deal) is that it uses leverage to reduce its out-of-pocket costs. In the case of AlliedBarton, it apparently parted with around $270 million for the purchase; the remainder was funded by $380 million in senior debt provided by a syndicate of lenders.

A share of the saleBlackstone often exits from its investments gradually. In recent times it has kick-started the process through IPOs, keeping a large shareholding at first and then selling it off over time. Its divestments of the lodging companies now known as La Quinta Holdings(NYSE:LQ) and Hilton Worldwide International(NYSE:HLT), to name but two assets, are being done this way.

The Hilton purchase is one of the largest -- not to mention most profitable -- leveraged buyout deals in history. In 2007, with several affiliates providing debt financing, Blackstone took Hilton's predecessor firm private for roughly $26 billion. Of that price, Blackstone ponied up only $5.6 billion of its own money, funding the remainder with that outside debt. It subsequently paid down much of those borrowings with Hilton's operating cash.

In late 2013, Blackstone brought Hilton back to the stock market with a huge IPO. The issue was a success, and the stock has been popular since then. Blackstone has trimmed its original post-IPO position of 752 million shares (around 76% of the outstanding amount) to about 544 million (55%). At Hilton's current market price, that remaining stake is worth around $16 billion.

Engineering an exitIf Blackstone isn't going the IPO route with AlliedBarton and is instead selling it at an auction, Blackstone will surely find a way to maximize its return. Apparently the security firm has done well under the wing of the private-equity giant, and perhaps this success will fuel a bidding war when it goes under the gavel.

And if an auction doesn't attract a sufficient number of deep-pocketed players? Well, then, there's always the IPO market -- or another lucrative form of divestment. Blackstone, after all, is exceedingly good at exits.

Author

Eric has been writing about stocks and finance since the mid-1990s, when he lived in Prague, Czech Republic. Over the course of a varied career, he has also been a radio newscaster, an investment banker, and a bass player in a selection of rock and roll bands. A native New Yorker, he currently lives in Los Angeles.